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Cineworld Collapses, Announces Restructuring​

By Jake Rickman​


What do you need to know this week?

After something of a slow-collapse, Cineworld plc, the world’s second largest cinema group, has finally filed for Chapter 11 bankruptcy protection in the US.

The cinema group is one in a series of blockbuster corporate collapses following on from the pandemic. The company was hit particularly hard during the initial stages of COVID-19, as theatres around the world were forced to shut in the wake of lockdown announcements. Two and a half years on, audience numbers have not recovered to pre-pandemic levels.

Compounding Cineworld’s difficulties, a Canadian court ruled in December that Cineworld’s attempt to withdraw from its proposed acquisition of rival company Cineplex was unlawful, hitting the company with a damages order of $1bn. While the Group has appealed the judgment, the possibility of losing its appeal likely contributed to management’s decision to initiate insolvency proceeding.

Why is this important for your interviews?

If you are interested in corporate restructuring, Cineworld is a matter to watch closely.

Companies with US-based operations enter Chapter 11 proceedings largely to prevent creditors from launching simultaneous actions against the company. This gives them time to negotiate with all their creditors at once and arrive at an arrangement.

We still do not know the full details of how the company will navigate its insolvency in other jurisdictions including the UK, given its operations are global and it has assets around the world. What is more, even after the announcement last Thursday, Cineworld’s shares are still trading on the London Stock Exchange.

Nonetheless, analysts predict that the company’s shareholders will ultimately be “wiped out”. That is, Cineworld’s creditors — which collectively are owed $5bn — are unlikely to agree to an amendment of the terms of the outstanding debt unless they take substantial ownership of the company. This suggests the company will enter into a complex multi-jurisdictional restructuring that will see the company’s valuable assets sold to a new special purpose vehicle ultimately owned by the company’s creditors.

Cineworld has already secured nearly $2bn in funding through debtor-in-possession facilities, which are debt agreements specifically tailored to inject cash into an insolvent company in Chapter 11 proceedings, so that they can maintain working capital to fund day-to-day operations until a longer-term solution is reached with creditors and other stakeholders. Participating creditors receive certain additional protections related to their right of repayment in the event the company cannot be rescued. The term debtor-in-possession refers to the fact that Cineworld remains in control of its assets and operations and thus business continues as usual (or as close to usual as possible).

How is this topic relevant to law firms?

As The Lawyer reports, restructuring powerhouse Kirkland & Ellis is advising Cineworld on the US aspects of its restructuring at this stage, while Slaughter and May has been instructed on UK matters. Two of Ashurst’s UK partners are serving as independent counsel to Cineworld’s directors.